How to Manage SaaS Contracts

New to your role at a SaaS company? Is your company thinking about transitioning your software or app to a software-as-aservice (SaaS) model? You’ve likely been grappling with a laundry list of major operating questions. What tiers of service will you offer? Are your intended price points sustainable for the company and its staff? How many of your existing customers will pony up for each tier? What promises can you make — and keep — regarding downtime, issue resolution, and security? 

But in the hubbub of reworking your business model, you might have overlooked a key logistical point: how will you efficiently draft and manage all the new SaaS contracts you’ll need? How will you stay on top of any applicable trial periods, subscription dates, and contract renewals? And how will you do all of that without completely bogging your legal team down?

Don’t worry: it’s all possible. 

In this ebook, we’ll show you how you can efficiently create and manage SaaS contracts, no matter how small your legal department is. We’ll start by reviewing some background information on how the SaaS model works and looking at what a SaaS contract should include. Then, we’ll show you how you can use contract templates and automated workflows to draft SaaS contracts quickly and easily. Finally, we’ll look at how a centralized, searchable contract repository gives you access to key information in your contracts.

Let’s get started.

What is the SaaS model?

Not to be dramatic, but a SaaS model changes everything.

With the SaaS model, companies don’t sell their software directly. Users don’t get a copy of the program that they can install on their own computers or servers. Users don’t even have a traditional license to use the software. You’re not selling your program, per se: you’re selling the services you provide, which include both the use of your program and customer support for that use.

Because customers aren’t getting a copy of the program, they don’t have to buy it up front. Instead, they pay a subscription fee to have access to the program or app. 

Let’s compare this to how we watch movies. If you wanted to watch a movie under the traditional model, you’d have to buy a DVD of the movie. But you’d also have to have — and maintain — a DVD player. If anything went wrong with the DVD player or your copy of the movie, you’d either have to fix it or replace it.

The SaaS model is the equivalent of using a movie streaming service. With streaming, you don’t need to own the DVD or a DVD player: you can watch whatever movies your streaming service offers, whenever you want. You don’t need to maintain any specific equipment or clutter your house up with shelves of movies.

But movie streaming services do have limits. You may not be able to access your usual library of movies if you’re in a different country. You also don’t have the right to share your login information with friends or to host public showings of movies. If you’ve paid for a lower tier, you may have to suffer through advertisements to watch movies. Similarly, the SaaS model has limits around user accounts and software features. A customer’s SaaS agreement license defines the level of software and service a customer is entitled to. SaaS contracts — like streaming movies — are ubiquitous these days. Many modern services are only available on a SaaS basis, such as these: 

• Client relationship management tools like Salesforce and HubSpot
• Messaging or instant chat platforms like Slack or Discord 
• Project management apps like Asana, Trello, Monday, ClickUp, and others
• Digital signature providers, such as DocuSign
• Workplace standby Microsoft Office 365

There are some big names on that list. Should you join their ranks by switching to a SaaS model? That depends! We can’t give you legal or operational advice about how you should run your business. 

What we can do is help you manage the contracting end of the SaaS model, starting with a few terms you’ll need to figure out.

What are the key terms involved in a SaaS contract?

Assembling your first SaaS contract will require input from not only your legal team but also the heads of your other business units. Your SaaS contract should protect your intellectual property, offer your customers a valuable service at a reasonable price, and shield you from liability.

Here are eight sections to consider when drafting a SaaS contract.

1. Scope Of Service And Access To Data

What services are you agreeing to provide? What features and functions will you offer at each tier or price point?

2. Data Ownership And Intellectual Property (Ip) Rights

Who owns the data that’s entered or used in the app? In addition to addressing questions about customer data, your contract should also explicitly state that you maintain full ownership of the software or app and all of its intellectual property. 

3. Data Security And Privacy

How will you keep your customers’ data safe? What security and privacy protections will you offer?

Consider spelling out physical security measures such as locked doors, security badges, and trained guards who have passed background checks as well as technical barriers like data encryption, firewalls, and regular virus scanning. Clarify what access limitations like user authentication protocols you will use and note how often you’ll audit your systems and test your security. You may also want to state what steps you’ll take in the event that a security breach occurs despite these precautions. What are the key terms involved in a SaaS contract?

Be mindful of data privacy protections such as the General Data Protection Regulation (GDPR) or the California Consumer Privacy Act (CCPA) too. Will you be storing data in a jurisdiction that implicates any additional privacy laws or regulations? Will you or your customers have additional compliance burdens due to the need to transfer data across borders? 

4. Retention And Destruction Of Data

Storing massive amounts of client data can get expensive fast. How long will you retain customer data? What will you do with the data after that period? Will customers be able to extract their data from the software, and if so, how?

5. Service Level Agreements (Slas) And Warranties

Service level agreements (SLAs) establish the performance standards you agree to meet. These should include the following: Uptime guarantees or the minimum availability of the platform Data backup and recovery protocols Response times for technical support inquiries and escalation procedures for unresolved issues Continuity plans and disaster preparedness measures You may also want to specify the remedies you’ll make available to customers if you fail to meet these obligations. 

6. Pricing, Payment, And Terms

Pricing can be a double-edged sword with SaaS contracts. While many customers expect to pay only a lower, fixed price for payas- you-go services, the scalability of SaaS programs can quickly lead to overage charges, especially for clients who underestimate their needs when they sign their contracts. Your contract should define how often you’ll bill customers, how much you’ll charge for additional services, and how many authorized users — at what level or levels of access — are included at each price point.

7. Liability

What are customers not allowed to do with your program or software? What are you liable for, and what is the cap on contractual damages you’ll cover?

8. Termination Of Agreement And Transition Of Services

How much notice do customers need to give to terminate their SaaS agreement? Will you take any steps to help clients transition to a different service provider if they choose?

Once you’ve figured out those business issues and written a contract you feel good about, let’s look at how you can use it as a template to quickly and efficiently generate new contracts.

Boost efficiency by using templates and automated workflows to generate SaaS contracts

As you transition to a SaaS model, you’ll need to draft and execute new contracts for all of your clients. That may mean generating thousands — or hundreds of thousands — of contracts.

If you’re thinking your legal team won’t be able to handle that massive influx of work manually, well, you’re right.

But they don’t have to, if you use your model contract — the one your legal team hammered out in collaboration with the rest of your business’s leaders — as a template for drafting new contracts.

A template contract defines each fillable field, such as the client’s name, contact information, chosen service level, and the start date for their subscription. All you need to do is populate those fields from the information the client provides and then generate a draft contract based on the level of service they’ve signed up for. Modern technology can even automate those workflows, so you can convert a potential client into a paying customer in just minutes with a wellcrafted contract that protects everyone’s interests.

If you’re negotiating specific terms with a larger client, of course, you may have to make adjustments or have a lawyer read over the final draft. In general, though, using templates and automated workflows to quickly create high-quality contracts offers a range of benefits such as these: 

• Your legal team will save time, which saves everyone money.
• You’ll be able to sign clients on faster, which will let you do more business.
• You’ll be creating a better first impression by making the customer’s initial experience smooth and seamless.
• Your lawyers will be less stressed and frustrated by the tedium of constantly creating and proofreading contracts.
• Your contracts will be more consistent, which will help you avoid crises and mistakes.

And that’s not all.

Gain deeper insights by managing SaaS contracts in the cloud

It’s one thing to generate contracts quickly and easily — but what happens to the information in those contracts? How do you store contracts so you can find them when you need them? How can you extract information from your contracts to understand your clients or prepare for their contract renewals?

With a cloud-based contract lifecycle management tool, you’ll have a centralized, organized, searchable contract repository. With every contract at your fingertips, you’ll spot risks a mile away. Plus, you’ll be able to unlock new insights about how your business works, so you can make smarter, more strategic decisions.

Need help getting started with SaaS contract management?

Ready to see how easy it can be to generate and manage SaaS contracts? Sign up for a free demo today to learn how the LinkSquares Cloud revolutionizes contract management.